Advanced Business Law
Purchase or Sell a Business
If you own a business or looking to purchase one, you should never go about it without the help of a lawyer. Every transaction should involve the use of a well-written contract that addresses all issues and protects your interests if things go astray from “normal.” A good contract will address issues of competition, seller misrepresentations, proper authorizations, along with due diligence periods and what happens if a party wants to cancel the contract. There are potential environmental issues, creditor/debt issues that may exist and tax issues that can be protected by complying with bulk sale notice requirements. A skilled attorney can also help you determine ways, maybe in coordination with your accountant, to defer or minimize the tax impact of your sale. For example, consider Monetized Installment Sales.
Retaining and/or Rewarding Key Employees
While in many situations you are required to treat employees equally and provide them with the same benefits, there are completely legal ways to provide “extra” or additional benefits for key personnel you want to reward and make sure you retain at your company. You can create nonqualified deferred compensation plans, executive restricted bonus plans and even tax-aggressive plans such as Restricted Property Trusts.
Monetized Installment Sales
When selling a business, clients often want their money upfront but would like to avoid or defer the payment of any capital gains taxes from the sale. And often the company has been depreciated thereby leaving basis at zero. So taxes might be due on the entirety of the sales proceeds. Wikipedia defines a Monetized Installment Sale as a special type of installment sale whereby a seller of appreciated assets attempts to defer U.S. Federal income tax liability over a period of years while currently receiving cash or other liquid assets via a monetization transaction, such as a loan. Pursuant to section 453 of the Internal Revenue Code, installment sale treatment allows a seller to defer recognition of a portion of the gain on the sale of an asset where at least one payment is to be received by the seller after the close of the taxable year in which the sale occurs. In a monetized installment sale, the seller defers recognition of tax on the installment sale payments while ‘monetizing’ the installment note via a separate, tax free borrowing. It is a technique that the IRS has been unwilling to take a position and issue any type of guidance for taxpayers. So,, you should never employ this technique without legal representation and obtaining a legal opinion letter to use in case of audit.
Private Insurance Program (an alternative to traditional captives)
Offshore insurance captives are difficult to manage and have posed tax problems in the past. As an alternative to the traditional method, consider a private insurance arrangement. Administered by Capital Alternatives, LLC, this Puerto Rican based insurance company might be a good option for the small business owner or medical practice. Contact our office for more information and to arrange a no-cost, no-obligation consultation.
Restricted Property Trusts
According to restrictedproperty.com, a Restricted Property Trust is designed for business owners and key employees of a business. Its main objective is long-term, tax favored cash growth and cash flow utilizing a conservative asset class. A Restricted Property Trust may provide investment earnings of 8-percent or more when compared to other fixed income vehicles. Annual contributions to a Restricted Property Trust are fully deductible to an employer, and partly taxable to a participant. The trust owns a whole life insurance policy, which allows for tax-deferred growth on the appreciation of the cash value. When funding the Restricted Property Trust is complete, the insurance policy is transferred from the trust to the individual participant. Upon distribution of the policy, a withdrawal is made from the policy to pay any taxes owed. Also an aggressive technique and only certain insurance carriers will participate in these arrangements.